This paper deals with the political economy of inequality in the distribution of consumption expenditure in the Arab region, using consumption expenditure as the best available proxy for the standard of living in developing countries (in contrast to income being the relevant proxy in the advanced countries). Following a brief discussion of the relevant concept of development to be adopted, we discuss the nature of the Arab social contracts that have prevailed in the region since independence and up to the mid-1980s. We show that, compared to the world, the Arab region enjoys a medium degree of inequality. This, we suggest, should be understood as the cumulative achievement of the redistributive social contracts. We also show that the recent trend, however, is one of increased inequality and discuss these recent trends in the context of tolerance towards inequality during the early stages of development. Societies that tolerate increasing inequality are said to be endowed with a deep “tunnel effect” ala Hirschman (1973). In the absence of the “tunnel effect” developing countries could fall into “development disasters” such as civil wars. We show that a relatively large number of Arab countries experienced “development disasters” over the period since independence. Finally, we address “inequality traps”, the interplay of socio-political and economic inequalities. Inequality traps are essentially based on the concept of equality of opportunity. Policies required for dealing with such traps during the process of development are reviewed and are found to be equivalent to the type of policies that were pursued by the Arab countries prior to their succumbing to neo-liberal policy packages of the 1980s and 1990s.
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